House In Revolt Over Excise Tax, White House Asks Unions to "Celebrate" It

House members are continuing their strong opposition to the Senate excise tax on so-called "Cadillac" plans that a growing number of economists and labor unions say would raise costs for middle-class families and wouldn't "bend the cost curve," as proponents say. At the same time, as Huffington Post reported, the White House and some Senators are continuing to push the now-discredited notion that by lowering health care benefits employers would somehow end up raising wages, thus generating more tax revenue. An earlier In These Times column dubbed this notion "voodoo economics for the punditocracy."

It's particularly galling to House Democrats the Obama administration is backing away from campaign attacks on the so-called Cadillac tax and the notion of taxing health care benfits, a stance that drew strong progressive support. As Rep. Joe Courtney (D-Conn.) recounts, he even pressed David Axelrod on the issue at a White House Christmas party: "You of all people should know what the problems are with this, and you went for McCain's throat on this."

"It's not the same approach," Axelrod countered, citing the indirect taxation method in the Senate that taxes corporations providing the costly plans.

"Tell that to a firefighter or a teacher," Courtney answered.

(You can read the full story about the latest political battling over health care reform and the excise tax on high cost plans at the Working In These Times blog.)

The Senate holds the cards, since the bill will die without a 60th vote. And they have the backing of the White House -- despite the fact that President Obama vigorously campaigned against the measure during the 2008 election. This Monday, labor leaders are being summoned to meet with the president to discuss their opposition. But already the arguments are being laid out to placate their concerns.

The Senate aide, when asked what how to reconcile the differences between the two chambers, said that they had to "convince unions that with this they can bargain for wages, not for health care." The logic, union officials argue, is more than a bit stretched, as employers seem likely to pocket the money saved on downsized health care plans rather then turn them into wage bumps. But the administration is also pushing this point.

"What you are basically doing is what [these unions] should be celebrating," explained the administration official. "We are translating lower health care costs for higher wages. That is a good deal for workers."

"Jesus Christ!," one top labor lobbyist exclaimed in disbelief when told about these administration claims. "The administration is locked into this on a policy level, but the House is opposed to this on a policy and political level."

Their members, expressing increasingly opposition during a conference call Thursday among the House Democratic caucus, have good reason to be concerned about the dangers they face politically with polls showing two-to-one opposition against it. -- and the lack of credible evidence justifying the ivory-tower theories justifying a taxation provision that could spell political suicide for Democrats. Rep. Joe Courtney (D-CT), who organized a letter with 190 House members in opposition to the tax, told In These Times, "Pelosi was reporting her conversations with the President, and she has not backed down. The polls are rock solid, and frankly, they're terrible." He cited the recent, under-reported polling of Stan Greenberg commissioned by the National Education Association that showed a sharp upswing in voters who would vote against a candidate if he or she supported the excise tax. "They were very dramatic," says Courtney. "Pelosi has seen those polls, Chris Van Hollen [DCCC chairman] has seen those polls."

But the policy grounds are just as weak as the politics. "The more we peel away the superficial claims, he shakier they are," Rep. Courtney says. "But it's a race against time," given the White House push for passing a bill modeled after the Senate version. But the health benefit tax = wage increases fairy tale doesn't have any solid evidence to back it up. As I noted in a column in Truthout.org, "The Congressional Budget Office said that over 80 percent of the revenues would somehow come from all those raises lavished on employees even though we're slowly emerging from the worst economic collapse since the Great Depression. In fact, surveys show as few as 9 percent of employers would actually give any raises to make up for reduced benefits, according to the Watson Wyatt actuary firm."

With the White House seeming to harden their position, Courtney says, "There's definitely potential for a big impasse." He foresees the upcoming meeting between President Obama and unions on Monday as an effort by the President to convince unions to support this historical health care reform. At the same time, knowledgeable sources say, House leaders and the White House may be open to compromise, and the House leadership, at least, is looking for alternative funding sources that could be acceptable to the Senate, such as raising Medicare taxes on unearned income; the current system essentially exempts wealthy heirs living off of investment income from paying anything towards Medicare revenues.

It's not clear which side (unions and House vs. Senate and White House) will blink in this game of excise tax "chicken," as one labor source dubs it, but the meeting Monday between the unions and President is at least a sign that the White House is concerned about the political toll the tax could take. The Huffington Post reported:

In light of the discontent, the White House reached out to labor leaders, asking to set up a meeting to go over some of the policy and political concerns.

"The president is calling us in to discuss some of the policy differences regarding the excise tax," said a union official. "It should be happening in the next couple of days."

The meeting should be a joint gathering with all the labor leaders and not individual sessions. The list of attendees is not yet final. But leaders of several other major national branches are expected to be there, including AFL-CIO, SEIU, CWA and AFSCME.

It was stressed that the gathering would not be an attempt by the administration to strong-arm unions into dropping their objections, but rather an opportunity to hash out some of the disagreements that they have with the proposal.

By the end of next week, the President is also expected to meet with House Democrats who will be on a policy-making "retreat," a critical meeting that could set the template for the final version of health care reform. "The excise tax is the greatest problem," Rep. Courtney says. "This is going to be a big week."